Integrating Environmental, Social, and Governance Criteria in Corporate Auditing: A Multiple Criteria Decision Making

ABSTRACT

Integrating environmental, social, and governance (ESG) factors into corporate decision-making and assessment processes has become essential due to growing stakeholder demands for ethical and sustainable practices. There is, nevertheless, a paucity of guidance available on the systematic prioritizing and incorporation of financially material ESG issues into the auditing technique. This study aims to illustrate how the Fuzzy-TOPSIS technique, structured multi-criteria decision-making (MCDM) approach, can assist auditors in tailoring audit programs that prioritize environmental, social, and governance (ESG) considerations. Fuzzy-TOPSIS use fuzzy linguistic assessments to capture a range of stakeholder viewpoints. It also considers trade-offs between criteria such as relevance and costs, benchmarks options against ideal solutions, and employs mathematical normalization. This process ultimately determines the optimal ranking of alternatives. This case study evaluates six ESG audit methodologies by three decision-makers using six criteria. The most promising option, with a closeness coefficient of0.74, was identified as the risk-based ESG auditing strategy using Fuzzy-TOPSIS. Technology solutions that assist ESG audits through automation and analytics are placed second. According to the weights, the most important factors are responsive governance, accurate and transparent financial reporting, and other related issues. Overall, the study showcases the effectiveness of the Fuzzy-TOPSIS method in addressing the intricate trade-offs and uncertainties associated with strategic ESG audit prioritization. This technique aids in identifying optimal solutions that incorporate different perspectives and achieve a balanced performance across relevant ethical, transparent, and accurate assurance aspects.

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WSN 191 (2024) 102-126

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